Microsoft to accept EU ruling

Company still hopes to overturn antitrust remedies in long run

Published 10:00 pm, Monday, January 24, 2005

Microsoft Corp. won't fight an interim court decision that puts two key European antitrust remedies against the company into immediate effect.

But the company said it will persist with its broader appeal of the European Commission's landmark ruling -- hoping to ultimately overturn the remedies despite complying with them in the meantime.

Microsoft's announcement yesterday means computer makers and users in Europe will be able to opt for a version of Windows without Microsoft's Windows Media Player software preinstalled. Industry experts question the practical effect of the remedy, but it's the first time the company has been forced to retreat, to any degree, from its controversial practice of bundling extra programs into the dominant operating system.

In addition, to comply with another aspect of the commission's March ruling, Microsoft is offering to license new technical information to competitors in the computer server market to help their software work more effectively with Windows.

The company's decision follows a ruling last month by Bo Vesterdorf, president of the European Court of First Instance, rejecting Microsoft's request to suspend those two remedies pending the outcome of its broader appeal. The company had two months from that point to decide whether to contest Vesterdorf's decision. But in some ways, its choice was anti-climactic. Even if it had appealed the interim ruling, for example, the company had said it would go along with the remedies in the short run.

As it weighed the possibility of contesting the interim ruling, the company decided it was best to concentrate instead on its long-term appeal and the effort to implement the remedies in the meantime, Microsoft spokesman Jim Desler said.

"While we continue our pursuit of the appeal and continue to argue very strongly in terms of those legal issues, we wanted to, on another track, work to forge a stronger, more constructive relationship with the commission and with all European governments," Desler said.

The ultimate outcome of the case could set a precedent for regulatory restrictions on Microsoft's future business practices. Microsoft reiterated yesterday that elements of Vesterdorf's interim ruling gave it reason for optimism about how the court will rule on its broader appeal.

In contrast, legal experts said the company's chances for overturning Vesterdorf's interim decision would have been slim.

"As a practical matter, their ability to get the judge overturned on appeal in time for it to make a difference was extremely remote," said Glenn Manishin, an antitrust lawyer at Kelley Drye & Warren LLP who has represented Microsoft competitors in proceedings against the company.

Microsoft has said repeatedly that it would like to reach a settlement with European regulators.

Barring such a deal, the company's broader appeal could drag on for years. When the commission issued its ruling in March, Microsoft General Counsel Brad Smith said the litigation in the case "may well last four or five years." In a statement yesterday, the company said it doesn't yet know when the court will hold a hearing in its appeal, but it expects to learn more about the timing later this year.

In the meantime, Microsoft said it made the first versions of Windows without Windows Media Player available to computer makers in Europe last week. Desler said it is too early to know exactly how many computer makers will be interested in the stripped-down version of the operating system.

But the company has said it doesn't expect much demand, if any, for what it considers a "degraded" version of the operating system. Microsoft has proposed calling the alternate version "Windows XP Reduced Media Edition," although Desler said yesterday that the name is subject to European Commission review.

Industry analysts say Microsoft's plan to sell the stripped-down version for the same price as the regular Windows varieties -- a practice that Microsoft says complies with the terms of the decision -- also could make it less appealing to computer makers. Both versions will remain options for computer makers.

However, the commission has said the availability of a stripped-down Windows version should open the door for rival digital media companies, including Seattle-based RealNetworks Inc., to make financial deals with computer makers to persuade them to install their competing media players on the stripped-down Windows before shipment.

RealNetworks yesterday declined to say whether it has made any progress along those lines.

The Seattle company contends Microsoft's bundling of Windows Media Player with Windows discourages competition by using one dominant product to give it an unfair edge in a separate market.

In the landmark U.S. antitrust case, similar complaints were raised against Microsoft over the bundling of Internet Explorer with the operating system.

RealNetworks is the last large company still fighting Microsoft in the European antitrust case. Microsoft reached settlements last year with companies and groups including Sun Microsystems, Novell and the Computer & Communications Industry Association. All three dropped their involvement in the European case as part of the deals.

Under the server-market antitrust remedy, Sun might have been the most likely candidate to license the newly available technical information from Microsoft. However, Microsoft says Sun already receives access to that information under terms of their settlement.

Desler said there has been "a little bit of initial interest" from other potential licensees in the server market. However, he said, it's too early in the process to know how the situation will turn out.